The SDLT impact on incorporation will depend on how the property is held.
Transfer from an individual to a connected company
This is where the property is held directly by the individual and it’s transferred to a connected limited company.
Where a company acquires a single interest dwelling valued over £500,000 unless it qualifies for a business purpose, higher 15% rate of SDLT will apply to the transaction, which is 15% on the entire value of the transaction. Relief is available for buy to let properties held in a company for investment purposes however should the company cease to hold the properties for this purpose within three tiers of the date of transfer then further SDLT may become due.
Transfer from a partnership to a connected company
Where a property portfolio is transferred form a partnership to a connected company any actual consideration for the transaction is disregarded and the consideration for the transaction will be calculated according to the sum of lower proportions calculations.
The formula is MV x (100 – SLP) %
The sum of lower proportion (SLP) is calculated by reference to the partnership shares held by each partner that are connected for tax purposes to the acquiring company.
The sum of lower proportion calculation is looking at apportioning interest before and after.
With incorporation of the property partnership to a connected company if the proportionate interest before and the proportionate interest after (i.e. partner’s interest in the underlying assets remains the same through their equity in the company after the transfer) the transfer remains the same then the sum of lower proportionate calculation will bring about a nil chargeable consideration and nothing chargeable to SDLT.
In our next posts we will be looking at other implications of property incorporation such as ATED and we will also cover SDLT arrangements on the market that claim they can reduce SDLT payable on property transferred to a connected company.
If you have any questions about how SDLT will affect you or to find out more please contact us on firstname.lastname@example.org.
Capital Gains Tax on Incorporation of a Property Rental Business
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Other Implications of Property Business Incorporation
SDLT on Property Partnership Incorporation
Income Tax for Non-residents investing in the UK residential property
Advantages & disadvantages of using a company for buy to let investments
Qualifying Loan Interest
The Ramsey Case, would your property portfolio qualify as a business?
Joint Property Ownership